Consumer Equilibrium

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Consumer Equilibrium

By | May 2013
Page 1 of 4
UTILITYUtility refers to want satisfying power of a commodity. In objective terms, utility may be defined as the “amount of satisfaction derived from a commodity or service at a particular time”. Assumptions:

• UH:\Games.exetility can be measured.
• Marginal Utility of money remains constant
• No change in income of the consumer, his taste & fashion to be constant • No substitute
• Independent marginal utility of each unit of commodity Utility Characteristics: • Utility is subjective/not measurable
• Utility is variable
• Utility is different from usefulness
• No legal or moral connotations
Marginal Utility (MU)
The word Marginal means “Border” or “Edge”.
It is the addition made to the total utility by consuming one more unit of a commodity. Total Utility (TU)
Total Utility refers to the total satisfaction derived by the consumer from the consumption of a given quantity of a good. TU = Sum of all MURelationship between TU and MU
I. TU=sum of MU
II. TU increases so long as MU is positive.
III. When MU is zero, TU is maximum
IV. When MU is negative, TU is diminishing.

* The exponents of the utility analysis have developed two laws which occupy a very important place in economics theory and they are :-
#Law of Diminishing Marginal Utility
#Law of Equi-Marginal UtilityLaw of Diminishing Marginal Utility The additional benefit a person derives from a given increase of his stock of a thing diminishes with every increase in the stock that he already hasLaw of Equi-Marginal Utility The consumer will spend his money income on different goods in such a way that marginal utility of each good is proportional to its priceConsumer’s equilibrium Consumer will attain its equilibrium (maximum satisfaction) at the point, where marginal utility of a product divided by the marginal utility of a rupee, is equal to the price.

Consumer’s...